The Joint Corp. (NASDAQ: JYNT) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The interim financial statements are unaudited. The Joint franchises, develops, owns, operates, supports and manages chiropractic clinics.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $25.1 million | $20.2 million | $47.5 million | $37.8 million |
| Operating income | $0.5 million | $2.0 million | $0.3 million | $4.0 million |
| Net income | $0.3 million | $2.7 million | $0.1 million | $5.0 million |
| Diluted EPS | $0.02 | $0.18 | $0.01 | $0.34 |
| Adjusted EBITDA | $2.6 million | $3.8 million | $4.4 million | $7.2 million |
- Q2 revenue rose 23.9%; six-month revenue rose 25.8%. Company-owned or managed clinic revenue increased 26.8% in Q2 and 29.6% year to date. Royalty revenue grew 20.2% and 22.9%, respectively.
- Profitability weakened despite revenue growth. Six-month general and administrative expense increased 47.0% to $31.9 million and represented 66% of revenue, versus 57% a year earlier. Management cited higher payroll, overhead and professional fees, including wages and costs to support expansion.
- Franchise Operations segment operating income increased to $4.2 million in Q2 and $8.6 million for the half year. Corporate Clinics segment income was $0.3 million in Q2 and a six-month operating loss of $0.1 million.
- Six-month operating cash flow was $1.5 million, down from $9.0 million. Investing activities used $11.4 million, including $5.6 million for clinic acquisitions, $3.2 million for property and equipment, and $2.7 million to reacquire regional developer rights. Financing activities provided $0.1 million.
- Cash and cash equivalents were $9.4 million at June 30, down from $19.5 million at year-end; restricted cash was $0.7 million. Debt under the credit agreement was $2.0 million. Operating lease liabilities totaled $22.9 million; finance lease liabilities were $0.1 million.
Material changes and developments
- Clinics in operation increased to 769 from 633 a year earlier: 662 franchised and 107 company-owned or managed. The company acquired four Arizona franchises in May for net consideration of $5.7 million and opened three company clinics during Q2.
- Q2 comparable sales increased 8% for clinics open at least 13 months and 3% for mature clinics open at least 48 months; system-wide sales grew 21%.
- On February 28, 2022, the company amended its credit facility: the revolver increased from $2 million to $20 million, with $5 million available for letters of credit, and the $5.5 million development line was terminated. The facility matures February 28, 2027. The company reported $2 million outstanding, a 2.49% borrowing rate at June 30, and compliance with covenants.
- The company repurchased regional development rights in California and New Jersey for net recorded amounts of $2.0 million and $0.2 million, respectively. Two California company-managed clinics were classified as held for sale; a $60,580 disposal loss was recorded.
- Subsequent to quarter-end, the company repurchased one Arizona franchise and three North Carolina franchises for combined net consideration of approximately $2.5 million.
Outlook, risks and unusual items
- For full-year 2022, management expects revenue of $98–$102 million, Adjusted EBITDA of $12–$14 million, 110–130 franchised clinic openings, and a net increase of 30–40 company-owned or managed clinics. The filing does not provide the prior outlook for comparison.
- Management described the second half of 2022 as a volatile macroeconomic environment and expects elevated cost inflation to persist. Wage inflation, labor availability, higher interest rates, reduced discretionary spending, COVID-19 uncertainty and the Ukraine War could affect results, clinic growth and financing access. Management said existing cash, operating cash flows and available credit were expected to meet operating and investment needs for at least 12 months.
- Disclosure controls were deemed ineffective at June 30 because of previously identified material weaknesses involving risk assessment and scoping, segregation of duties, complex accounting, revenue recognition and leases. Management expected remediation during fiscal 2022; the weaknesses would not be considered remediated until controls operated effectively and were tested.
- A claim alleging liability relating to a former employee was settled in February 2022 for $750,000. A $250,000 insurance recovery was recognized; the $500,000 net impact was included in 2021 results. The filing also notes ordinary-course litigation and insurance coverage for certain claims.
- The filing reports a $60,580 held-for-sale valuation loss in 2022. Six-month 2021 results included a tax benefit of $1.0 million, primarily related to excess tax benefits from stock option exercises, contributing to the year-over-year net income comparison.
Key facts for investors to verify
- Whether clinic growth and comparable-sales trends translate into improved margins, particularly as labor and corporate-clinic costs rise.
- Whether operating cash generation improves and supports acquisitions, clinic development and other investment needs.
- Available revolver capacity, borrowing costs and continued compliance with financial covenants as interest rates and operating conditions change.
- Progress and testing of the stated internal-control remediation plan, including whether material weaknesses are ultimately resolved.
- Execution against 2022 revenue, Adjusted EBITDA and clinic-opening targets, and the effects of inflation, labor shortages and discretionary-spending risks.